Flags of the EU member states fly outside the European Parliament in Brussels. Eurozone finance ministers will hold a conference call at lunchtime to finalise a Spanish bank bailout deal. AFP PHOTO/ GEORGES GOBET

The announcement earlier by the ECB that it would no longer accept Greek sovereign bonds as collatoral - as of next week - has caused some confusion and, it would seem, no little consternation. It prompted Greek prime minister Antonis Samaras to contact members of the Troika, reports Helena Smith in Athens. She writes:

In the wake of the ECB statement, Samaras has been busy working the phones according to Greek media. Barely a month after assuming the helm of a fragile coalition government, the conservative prime minister spent "much of the day" speaking with Mario Draghi the ECB president and IMF chief Christine Lagarde agreeing, aides say, to meet both in the coming weeks.

A statement released by Samaras' office said: "(Samaras and Draghi) had an initial discussion on economic developments in Greece and Europe and they agreed to meet immediately after August."

The ECB said earlier in the day that it would stop accepting as collateral Greek sovereign bonds and other assets backed by the country's government from 25 July - a decision that would only be reviewed once debt auditors representing Greece's Troika of creditors completed an assessment visit that begins next week.

Finance ministry officials have been clearly taken aback by the decision. All in all it's been a bad day for Greece with the state-run news channel ERT also reporting that the Austrian foreign minister Maria Fekter is "furious" at the lack of headway Greece has made in implementing reforms. She was quoted as saying that the debt-stricken nation had met none of the demands - least of all privatising loss-making state assets -- asked of Greece by lenders keeping its insolvent economy afloat.

And with that it's time to end the blog for another week. A day that promised to be fairly uneventful turned out somewhat differently, with Spain and Italy coming under further pressure and the ECB's comments on Greek bonds.

Elsewhere the FTSE 100 is down 62.42 points or 1.09% at 5651.77, Germany's Dax has declined 1.9%, France's Cac has closed 2.14% lower and on Wall Street, the Dow Jones Industrial Average is currently down 114 points or nearly 1%.

The Spanish market has recorded it biggest one day fall for two years, down 5.8% as the fear that it will need a full bailout grow.

EU finance ministers may have agreed the €100bn bank aid for Spain, but Valencia's admission it wants financial support from central government has spooked investors.

If Spain needs a full bailout, that could run to €500bn - and the worry is that the pot of money available is not sufficient. With Italy also in the firing line - the Italian FTSE MIB index is down 4.38% - there is no end in sight to the crisis.

As for bond yields, Spain's 10 year yield is now 7.28% while perhaps more worrying for its prospects of shorter term funding, the two year yield is 5.86%.

The Spanish fears have pushed the euro to an 11 year low against the yen and a two year low against the dollar.

Here's something from earlier. Greece's privatisation chief has resigned, accusing the country's recently elected government of not giving enough support.

Costas Mitropoulos - who had led the privatisation agency since last August - quit on Thursday. This is a blow ahead of the Troika's visit to the country next week, especially given that the sale of state assets are a key condition of Greece's €130bn bailout agreement.

Any delay following his departure will put Greece right back in the firing line.

Wall Street has opened and, to no one's surprise, it is in negative territory. The Dow Jones Industrial Average fell nearly 100 points initially, but has recovered a little to show a 60 point decline at the moment.

Not exactly a quiet Friday afternoon at the moment as fears grow of a full Spanish bailout, prompted by the earlier news that Valencia is looking for financial help from central government.

The euro has slumped to a new two year low against the dollar of $1.2160, and is at its weakest against the Japanese yen since November 2000. Spanish ten year bond yields ar now at 7.296%, well above the level deemed to be unsustainable. The Ibex market is down 4.5% now.

And Italy is being pressured too, with the FTSE MIB down 4% and its yield up to 6.16%.

The European Central Bank said today it would stop accepting as collateral Greek sovereign bonds and other assets backed by the government from next Wednesday. It will review the situation once the troika of EU/IMF/ECB officials has completed its visit to Athens.

In the meantime, Greek banks will continue to be able to get funding from the Greek national central bank, the ECB said.

Away from Spain, a top former IMF economist has slagged off the Washington-based institution in a manner reminiscent of the Goldman Sachs banker who launched an aggressive attack on the investment bank following his resignation a few months ago.Peter Doyle blasted the fund for its "incompetence," "failings" and "disastrous" appointments for the IMF's managing director in a letter to the IMF executive board. He said he wanted to explain his resignation after 20 years. The letter was obtained by CNN."This fact is most clear," Doyle states, "in regard to the appointments for Managing Director, which over the past decade, have all-too-evidently been disastrous."Referring to its first female managing director Christine Lagarde - who recently completed her first year in the role - Doyle says, "even the current incumbent is tainted, as neither her gender, integrity, or elan can't make up for the fundamental illegitimacy of the selection process."

International Monetary Fund Managing Director Christine Lagarde holds a news conference following the release the IMF's annual report on the US economy, at the IMF headquarters in Washington, July 3, 2012. REUTERS/Jason Reed

Staying with Spain, for the musically-inclined, here is a reminder from Spain that protest and culture can make fine bedfellows. Tremlett reports:

In this video young flamenco singer Rocío Márquez Limón goes down the coal mine in Santa Cruz del Sil and, with her voice, extracts tears from the miners who have spent a month and half on an underground protest against mining subsidy cuts in austerity Spain. Her speciality is, appropriately, a branch - or palo - on the "tree" of flamenco music that is known as the minera and originates from the mines of Cartagena, eastern Spain.

And here is a statement from EU vice president Olli Rehn. Spain's economy ministry will brief journalists on the bank rescue at 4pm BST.

The Memorandum of Understanding approved today sets out the precise conditions under which public money will be made available for solvent banks that are unable to raise the capital they need through private means. Restructuring plans will have to comply fully with EU state aid rules, to ensure that the banks that emerge at the end of the process will be viable entities that will not need further public support. In parallel, the regulatory and supervisory framework in Spain will be significantly reinforced and consumer protection legislation strengthened.

The Memorandum also makes clear that Spain will be expected to maintain its commitments to correct its excessive deficit in a sustainable manner by 2014 and to adopt the structural reforms set out in the country-specific recommendations adopted by the Council on 10 July. The explicit link between these obligations and the sectoral programme is deliberate and pertinent. It is only through determined action across all of these fronts that Spain can create the financial stability and competitive, dynamic economy that will bring about a steady and lasting fall in unemployment.

More on Valencia from Giles Tremlett in Madrid. Strictly speaking Valencia has today become the first region to start the process of what can, in effect, become a Spanish government funded bailout, he says. It is the most indebted Spanish region alongside its northern neighbour Catalonia.

We may see the government to use a euphemism for this, however, as "bailout" is currently its least favorite word (and it refuses to apply it to the bank bailout agreed today).

Mariano Rajoy's government has imitated Europe's own rescue funds by setting up a system that allows it strict control over regions which are unable to fund themselves on the markets and need financial help. It may eventually impose an additional package of cuts on Valencia and could even send in what budget minister Cristobal Montoro calls "the men in black" - i.e. ministry officials who will travel to Valencia to monitor spending and income and order further measures.

It is embarrassing to Rajoy that Valencia - increasingly sen as a byword for corruption and mismanagement - has long been run by his own party, the centre-right People's party (PP). Ratings agencies started giving Valencia's debt "junk" status several months ago.

General view of some of the around 45,000 people from several countries that participated in the Tomatina feast or 'tomato fight' in Bu ol, Valencia, Spain last August. 120 tonnes of tomatoes were thrown in the event. EPA/BIEL ALINO

The Eurogroup was unanimous in agreeing the Spanish bank bailout

It said it was necessary to safeguard financial stability in the whole eurozone.

In a statement, the group said the exact amount would be determined after "a thorough bottom-up assessment of capital needs for individual banks." This audit is expected to be completed in September. It said:

The financial assistance will be provided by the EFSF until the ESM becomes available, then it will be transferred to the ESM, without gaining seniority status. It will cover financing needs of up to €100bn.

The agreement on the Spanish deal however is being overshadowed by news that Valencia has become the country's latest region to apply for financial help from the central government to ease its debt burden.

This news has sent the euro to a session low of $1.21903 against the dollar, while Spanish yields have climbed further above 7% and the Ibex index is down more than 3%. Fears of a full bailout for the country are growing.

Italy is also coming under renewed pressure in the wake of Spain's latest woes.

More comments from Italian PM Mario Monti. He ruled out further sweeping austerity measures and denied reports his government was planning to introduce a special wealth tax, saying Italy was on the right trade to meet its immediate fiscal targets.

The risk premium on Spanish ten-year government bonds has jumped to a euro era high. The spread between Spanish and benchmark German bond yields has widened to 595 basis points from 582 bps last night, in thin trading.

A trader told Reuters:

There's a bias for safe haven debt in a very thin market, triple-A countries are performing very well. It's a typical Friday move - don't be short [of Bunds] on a Friday!

Italian prime minister Mario Monti is speaking. According to flashes on Reuters, he has described the Italian-German bond yield spread as "disappointing" given the reforms Italy has carried out.

He also believes that unions and other groups will adopt a responsible attitude to avoid social tensions. And he reiterated that it's important for Italy to get through the crisis by itself rather than counting on a bailout from its European partners.

He told reporters after a cabinet meeting:

For the dignity of a country, for its sense of confidence in itself, for the respect that the country and Italian citizens enjoy on the international stage, there is a big difference between managing alone or doing it with the help of a bailout from Europe.

Protesters took to the streets of 80 Spanish cities last night after prime minister Mariano Rajoy's People's party pushed a €65bn (£51bn) austerity package through parliament.

Giles Tremlett reports from Madrid today:

The final figures for last night's trades unions-organised anti-austerity protest marches through Madrid, Barcelona and 80 other Spanish cities was over the 300,000 mark, according to press reports, though reliable numbers are hard to come by. Spontaneous protests have been happening in Madrid every day since the latest 65bn euro austerity package was announced last week, with civil servants to the fore. This morning has already seen both the central Gran Via and Calle Genova, where prime minister Mariano Rajoy's People's party (PP) is headquartered, blocked to traffic. These flash protests are hard to police and the appearance of police barricades outside some ministry buildings during some marches suggests the government is digging in for a potentially difficult summer.

The euro extends losses

Traders cited a German newspaper interview with a member of Angela Merkel's coalition government, who said eurozone countries must stick to agreed reforms - or leave the bloc.

The euro hit a 3 1/2 year low against the pound, falling to 77.895p, its weakest level since October 2008. It fell to a session low of $1.2227 against the dollar and to a seven-week low against the yen of 96.05 yen.

Asked if Greece could stay in the euro, Gerda Hasselfeldt, a senior member of the Bavarian CSU, Merkel's sister party, told Rheinische Post:

It's up to Greece to implement [austerity] measures and sort out its finances within the eurozone. The requirements can't be relaxed further. International creditors have already made big concessions to Athens. If a country is not willing or unable to comply with its obligations, it must leave the eurozone.

Ryanair has cut flights from Madrid and Barcelona this winter, blaming the Spanish government's tax hikes at these airports. It is scrapping 11 routes out of Madrid and four out of Barcelona.The carrier's boss Michael O’Leary said:

Ryanair objects to the Spanish government’s decision to double airport taxes at both Madrid and Barcelona airports. Sadly, this will lead to severe traffic, tourism and job cuts at both airports this winter. Ryanair’s cuts alone will cause a combined loss of 2.3m passengers and over 2,000 jobs at Madrid and Barcelona El Prat airports to other lower cost airports elsewhere in Europe, where Ryanair continues to grow. These route and traffic cuts can be reversed but only when the Spanish Govt and its airports monopoly AENA [Aeropuertos Españoles y Navegación] reverse these tax increases and cuts its high airport charges.

Just a reminder that eurozone finance ministers are due to hold a teleconference at lunchtime to rubberstamp the Spanish bank rescue. "The only item on the agenda is the memorandum of understanding for financial assistance to the Spanish banking sector," Jean-Claude Juncker, Luxembourg's prime minister who chairs the euro group, said yesterday.

Eurozone governments have pledged an initial €30bn in loans by the end of the month, the first batch of a maximum €100bn offered to help Madrid overcome its banking crisis.

James Knightley, UK economist at ING, notes that UK income tax receipts are down on the same period last year, as are corporation tax receipts, while VAT receipts are up.

Consequently, it is clear that the recession is leading to a worsening of the UK’s underlying fiscal position and raises more question marks over the effectiveness of the government’s austerity measures.

If this trend was to be continued over the rest of the fiscal year, the PSNBR would come in around £140bn, which would be £20bn above the targeted £12bn. Including the transfer of £28bn of assets from the Royal Mail’s pension funds, the PSNBR would come in around £112bn, which would again obviously be £20bn above the targeted £92bn.The chancellor desperately needs the economy to quickly return to growth and then sustain that, or else he faces suffering a significant shortfall on his public finance targets. Furthermore, the longer the economy continues to flounder, the more pressure the government will come under to ease back on the fiscal austerity in the near term at least. This was highlighted by the IMF’s comments this week.

Vicky Redwood, chief UK economist at Capital Economics, was quick to react to the worsening in the government finances:

More bad news for the Government comes in the form of another poor set of UK public finance figures. Borrowing remains on course to overshoot the OBR’s full-year forecast by a long way – on current trends, by about £20bn. Government spending growth slowed in June, but revenues growth remained pretty sluggish. Admittedly, the data have been a bit volatile recently, in part due to bank holiday effects.

Nonetheless, the trend has been worsening for a few months now and the full effect of the recent return to recession on the public finances is probably yet to be seen. Accordingly, we still think that concerns about the UK’s fiscal position are likely to build.

UK government finances worsen

Britain's government borrowed more than expected last month as the weak economy took its toll - £14.4bn against £13.9bn in June last year. City economists had pencilled in £13.4bn.

This took government borrowing in the financial year so far to £14.9bn, compared to £38.4bn at this stage last year, but this year's figures are flattered by the transfer of the Royal Mail pension assets to the government. And Britain's net debt rose to £1.038 trillion - a record high as a percentage of GDP, at 66.1%.

We'll get the UK public finance figures for June in about 15 minutes. Philip Shaw, chief economist at Investec, is predicting that the government had to borrow £12.7bn in June, slightly less than in June 2011, but says that due to disappointing tax growth the government finances have already worsened since the beginning of the financial year vis-a-vis the same period last year.

Data on the public finances are typically volatile from month to month, but it is nonetheless easy to come to the conclusion that the public finances have not got off to a good start this fiscal year. Stripping out various ‘one-off’ factors such as the £28bn inflow of Royal Mail pension assets, our calculation is that over the first two months of 2012/13, borrowing has been running £5.5bn higher than the same period last year.

One stand out figure in May is that central government current expenditure was 7.9% up on a year ago. This sits uneasily against Mr Osborne’s austerity measures and we suspect that this is due to a change in the timing of payments, partly from April, but also perhaps from June. At the same time, while tax receipts have been rising, their growth has been subdued and at 2.1% on the year so far, is falling short of the Office for Budget Responsibility’s forecast of 3.9% for 2012/13 overall, a shortfall which we consider to be related to the weakness of the economy.

Overall we are forecasting the PSNB [excluding banking bailouts] to come out at £12.7bn in June, which thanks to a restrained spending number would be £400m below borrowing in June last year. However on this kind of progress the deficit seems set to overshoot official forecasts of £92bn for 2012/13, unless the economy suddenly finds a new lease of life.

Despite some losses this morning, European shares are on track for a seventh consecutive week of gains, amid hopes of more economic stimulus in the US. The FTSEurofirst index of Europe's top shares closed at its highest level since early April yesterday, albeit in low trading volumes.

Markets are nervous with lingering doubts whether Madrid can avoid a full-blown bailout. Weak demand at a bond auction pushed Spain's 10-year bond yield above 7% yesterday for the first time in more than a week. It traded at 6.94% this morning, while its Italian equivalent hovered just below 6%, at 5.979%.

Let's have a look at the euro. The single currency has eased against the US dollar and is close to a record low versus the Australian dollar. Euro flight resumes, says Michael Derks, chief strategist at online forex broker FxPro.

In evidence once more yesterday was the resumption of a recent theme, namely a continual flight from the single currency. Against an otherwise relatively benign backdrop, the fact that the euro is consistently losing ground against other major currencies is incredibly revealing, suggesting a deep underlying disposition to a reduction of exposure by many different types of wealth managers, especially sovereign wealth funds.

Worryingly, there was no particular trigger in evidence yesterday, which reaffirms the underlying weakness of the currency. EUR/JPY fell to a new 11yr low, EUR/GBP dropped to a new four-year low and there were record lows for the euro against the Aussie, Kiwi and CAD. Against the dollar, for the umpteenth time in the past two weeks the 1.23 level has been tested and rejected.

For now, there is absolutely no mileage in attempting to stand in front of the steady determination to sell the euro. It does not take a rocket scientist to predict that the euro will likely slide further over coming weeks as money managers with euro-exposure continue to seek a safer haven.

On the corporate front, Vodafone is struggling in southern Europe, with quarterly revenues in Italy tumbling 7.7%, and in Spain down 10%. Its chief executive Vittorio Colao is embarking on a new wave of cost cuts.

"I understand that shareholders will be very disappointed that the board has concluded not to return a second £250 million of capital but it would be inappropriate to do so against the backdrop of heightened investment, economic and regulatory uncertainty.

Yesterday's decision by the German parliament to pass the Spanish bailout and by a large majority as well is likely to make today's EU finance ministers conference call to discuss the terms of the bailout or Memorandum of Understanding a lot less problematic, and open the way to the release of the initial €30bn which Spain needs by the end of the month.In return the Spanish government has agreed to cede oversight of its banking system to the EU as well as a host of banking sector reforms.It certainly can't come a moment too soon given yesterday's extremely disappointing bond auction, however the insistence that the money must go through the Spanish government, thus adding to Madrid's debt burden, is making markets nervous, and putting upward pressure on yields.Germany is insisting that this has to be the way it is done until proper fiscal oversight and accountability through an EU wide banking regulator is put in place, which isn't likely any time soon.The ECB's alleged change of heart with respect to haircuts for senior bond holders for fundamentally insolvent banks is also putting upward pressure on yields, while comments from budget minister Montoro that the government had no money didn't exactly help either.

Good morning and welcome back to our live coverage of the eurozone debt crisis and world economy. The main event today is a conference call by eurozone finance ministers to approve the Spanish banking bailout. Spain has requested up to €100bn in aid to recapitalise its banks.

It helps that German lawmakers backed the package yesterday, although Angela Merkel lost her "chancellor's majority" again and had to rely on opposition votes. Gary Jenkins, of Swordfish Research, says:

There had been some speculation that any monies left over from the €100bn could be used to purchase Spanish government debt but an EU official confirmed yesterday that the money is only for the banks and any residual cash will not be directed to buying government bonds.

He notes German finance minister Wolfgang Schäuble's insistence yesterday that the Spanish government would remain on the hook for the loan: “The Spanish State will be liable to the EFSF and in the future to the ESM for the repayment of the loans….nothing else is possible under the agreed treaties and laws.”

All other things being equal it is hard to see how Spain can avoid a downgrade to junk by Moody’s.